The draft 2024 Tax Laws Amendment Bill, which was recently published by National Treasury and the South African Revenue Service (SARS), is “a step in the right direction,” according to industry experts.

It proposes amending the carbon offset regulations under the 2019 Carbon Tax Act to increase the threshold for eligible renewable energy projects from 15 MW to 30 MW to incentivise larger-scale renewable energy projects.

The tax incentives include deductions and accelerated capital allowances for renewable energy generation sources such as wind, solar, hydropower and biomass.

Businesses will be able to deduct 50% of the cost of renewable energy assets in the first year, 30% in the second year and 20% in the third year. For renewable energy projects over 5 MW, deductions will be available for infrastructure costs, which will facilitate development of large-scale projects.

Another notable proposal is an investment allowance for automotive companies expanding production capacity for electric and hydrogen-powered vehicles in South Africa. This includes updating the Carbon Tax Act to align with new rules for measuring greenhouse gas emissions in line with global standards.

As South Africa is a signatory to the United Nations Framework Convention on Climate Change, says Vally Padayachee, Strategic Advisor for the Association of Municipal Electricity Utilities (AMEU), this “shows the country is committed to cutting greenhouse gas emissions and encouraging investments in environmentally friendly, low-carbon energy including supporting the Just Energy Transition trajectory”.

While the tax incentives offer significant benefits, there are challenges, adds Padayachee. “The draft is not an official publication and should not be used as a legal reference. Overall, while the guide provides valuable information on tax incentives for renewable energy projects in South Africa, taxpayers should be aware of the complexities and limitations associated with claiming these deductions. Proper understanding and compliance with the qualifying criteria are essential to maximise the benefits offered by the deductions under the relevant sections.”

National Treasury and SARS are seeking input from stakeholders in the energy sector on the draft regulations. Public comments are due by August 31 and the Bill is expected to be presented to Parliament later this year.